Boston Globe Video on Doriot and ARD

In connection with his forthcoming story on Creative Capital in The Boston Globe’s Sunday’s Business section, Globe columnist Scott Kirsner produced a video about American Research and Development and one of the entrepreneurs ARD backed: Adage’s Tom Hagan. Adage was a Cambridge electronics company. Check out the video here.

It’s a pretty interesting interview in which Hagan praises Doriot and ARD for inventing modern venture capital. “His whole approach was finding people who wanted to build a business, rather than finding a quick road to riches,” said Hagan. “What ARD did was create a channnel for old line New England money into these new ventures, which were started in many cases by young technologists who otherwise had no entree to that money. It was a very signficant thing they did. A lot of people don’t realize how staid and stodgy Boston was at the time.”

But on the other hand, Hagan argues that ARD retarded the growth of the New England venture communtity. His thesis is that by only investing $70,000 into Digital Equipment Corp., ARD created the impression that startups did not need a lot of money to build a business.

“The venture capital community in Boston has acquired a reputation, which I attribute to ARD, for being less adventurous, less ready to put a pile of money on the table, than is true in Silicon Valley,” said Hagan. “They acquired the notion, and it spread in Boston, that was ‘how you did it.’ You started with a relatively modest amount of money and turn profitble very quickly. The notion of needing a reasonably substantial startup nut was just plain foreign to ARD and the companies they spawned.”

While it is true that Doriot was criticized by some people for not investing large amounts of money in a few companies, I have to respectfully disagree with Hagan’s main point that ARD helped to retard the growth of New England venture capital. It is just not true. Without ARD, venture capital in Boston might not have ever taken off. ARD pioneered the model, which inspired many, many people in New England to enter the venture capital business and invest in startups. And one of ARD’s spin-offs, Greylock Capital, is one of of the best VC firms operating in New England, if not the best.

Second, it is NOT TRUE that ARD only invested $70,000 in Digital. In 1958, ARD invested another $30,000 in Digital to provide working capital for Digital’s expanding operations. And in 1962 ARD invested another $300,000 in Digital. That comes to a total of $400,000–a pretty significant sum even for the early 1960s. ARD was not just an early stage VC–they often invested multiple times in the companies they backed.

Third, it’s absurd to say that ARD had anything to do with Boston’s rep for being less adventurous. ARD always thought in big and bold terms and took enormous risks. I say blame the generation of Boston-area VCs after Doriot for not being more adventurous–and for not focusing more of their energy and time in Northern California where the microprocessor and biotechnology revolutions exploded.

What do you think? I am really curious to hear from other New England folks on this topic.